A. Technical Field of the Invention
This invention generally relates to a computerized system for preparing and processing multiple universal life insurance quotes and for preparing and processing universal life insurance applications, based upon those quotes. More particularly, the present invention relates to a machine, manufacture, process, and improvement thereof.
More particularly, this invention relates to a computer system for preparing, processing and transmitting life insurance premium quotes as part of a mortgage calculation in support of a new financial product. In the new financial product, life insurance is used as collateral and a means for repayment of a mortgage, and facilitates the purchase of real estate without (or with a greatly reduced) down payment. The invention includes automated aspects of the use of premiums paid on life insurance as a substitute for the initial down payment on a mortgage, the use of life insurance policy death benefits to retire the mortgage upon the death of the borrower, the use of accumulated cash values to retire the outstanding principal on a mortgage in the event of the borrower's survival, and the services of storage and transmission of data for all of the foregoing.
B. Background of the Invention
Prior to the present invention, insurance quotes for term life insurance, health insurance, and dental insurance were available from a single computer, but universal life insurance quotes were not known to be available.
Using such single-computer based systems, insurance sellers of annuities, health policies, and term life insurance could request quotes from a large data base of insurance carriers' products. The computer computes the price of a particular financial product offered by a particular carrier for a given customer of a given age, sex, and health, or insured population profile. Then the computer repeats this operation for a large number of different insurance companies. Comparing the values so calculated for a larger number of different carriers' insurance products has permitted the computer to automatically identify that product which provides the best value for the consumer. This also permitted the seller to provide the insurance purchaser with the least expensive quote with a minimum of effort.
Companies which have developed and used technology of this kind include Quotesmith, in Palatine, Ill., Group Benefit Shoppers in Boulder, Colo., Dinan in San Jose, Calif., Select Quote in San Francisco, Calif., and Insurance Information Inc. in Lowell, Mass. Quotesmith, Group Benefit Shoppers and Dinan operate primarily in the group medical field, identifying the best policy for brokers and agents seeking to offer competitive quotes. Quotesmith also uses its technology to provide a similar service to brokers wishing to identify the best term life insurance, single premium deferred annuity, individual medical insurance, and group dental insurance policies. Select Quote offers to find the lowest cost quote for a term life insurance policy, selling insurance to the general public on a discount basis. Insurance Information Inc. offers to find the best term life insurance policy for a fee. See "New Firms Offer Computer Listings Of Insurance Prices: Both Have National Ambitions; Both Are Interested in Affiliations with Banks," American Banker, Oct. 3, 1985, Pg. 1; "Here's how to find cheaper and better health insurance," Medical Economics, Mar. 19, 1990, Pg. 109; and "Health quoters target agents," National Underwriter Property & Casualty Risk-Benefits Management, Aug. 28, 1989, Pg. 9.
While companies have discussed a desire to have the ability to quote homeowners' insurance, a form of universal life insurance, as early as 1985, as of September 1993, no company or individual has been known to find a way to provide multiple universal life insurance quotes to the public in the United States from a single computer, let alone use that ability to identify the best product.
Instead, insurance agents, insurance brokers, and others representing individuals wishing to purchase universal life insurance policies have been forced to go to many different insurance companies to request quotes. Once received, these universal life insurance quotes have been difficult to compare. Differences in the way these carriers calculate the universal life insurance values have made product comparisons difficult. As a result, insurance sellers have been forced to conduct lengthy and time-consuming analyses to establish which was the best product for the customer. But in view of the aforementioned technological limitations and a fragmented life insurance industry with more than 5,000 carriers, brokers and agents work with only a few carriers. They have not had the ability to search out the best product for their customers. This has become increasingly problematic as product complexity has grown in the universal life insurance industry. Indeed, in some cases unscrupulous agents have taken advantage of increasing complexity in products to further their own unethical ends. In "Investigating Agents," Best's Review, September, 1993, pp. 29-30, the authors, Stefan E. Keller and Tony D'Orazio, pointed out, "The intricacies of these [life insurance] products require that agents and brokers be more educated than ever to be able to adequately represent the products to consumers. At the same time, the growing complexity increases the probability that products will be represented in an unethical fashion." In the absence of a systematic means for computing universal life insurance values and comparing products, a consumer purchasing a universal life insurance policy has little to assure himself or herself that he or she has purchased the best policy.
Once a seller has identified the appropriate product for an individual from one of the thousands of policies available, the process of completing the life insurance carrier's application forms and obtaining underwriting approval for the product can take weeks or months. Because carriers have different insurance forms, and no system has been designed to accommodate the different policies and their associated forms, even if a consumer, agent, or broker identifies the best policy, he or she might not have the appropriate policy forms on hand to initiate an application. He or she and would have to request these forms by mail and, having received them, complete them manually. Because many different carriers have different ways of assessing their underwriting risks, if the prospective insured is of less than perfect health, the agent or broker may have to request additional illustrations. (An illustration is a projection of estimated policy values over a defined period beginning in the present.) For example, a single "No" response to an underwriting question may trigger a rated policy with higher premiums. Such a policy rating would necessitate a new round of illustrations, starting the whole cycle of illustrations over again.
Given that a system for preparing and processing multiple universal life insurance quotes and for preparing and processing universal life insurance applications would be highly desirable, it would seem obvious that such a system should exist. However, there are several reasons that the aforementioned invention seems to have been elusive heretofore.
The first reason that multiple universal life insurance quotations have not been available from a single computer in the past has to do with, among other things, the mathematics of universal life insurance. Universal life insurance generally involve iteration computations, unlike health insurance, dental insurance, or term life insurance, where a strict linear relationship exists between a given set of insurance parameters (e.g., age, health characteristics, etc.) and the benefit cost. Therefore, product illustrations or projected values for those products require simply looking up the appropriate value in a data base structure based on a given set of product parameters. The best product, given the selection criteria presented, is always the cheapest product. However complicated, complexity of the design for such a system is limited to the requirements of table manipulation. In addition, the universal life insurance policy accumulates cash value. Universal life insurance is therefore a savings vehicle, and any system which produces universal life insurance illustrations must take into account the time value of money. The time value of money is an exponential, non-linear function. The relationships between the cash value accumulated by the policy, its death benefit, and the amount of premium needed to generate them, are also non-linear. They take into account the time value of money and other factors, such as Internal Revenue Service guidelines for the definition of insurance. Therefore, unlike term life insurance, health insurance and annuity products, such a system for illustrating universal life insurance cannot depend on tables of values which can be selected from using a simple set of selection parameters. Heretofore no system has been able to iterate sufficiently efficiently to find the lowest premium from among a large number of different universal life policies using a single, affordable computer.
A second reason that universal life quotes from multiple carriers have not been available from a single computer has to do with how universal life insurance calculations must be manipulated to solve for non-linear values. The best policy in a universal life insurance policy comparison can be determined in several ways other than by calculating the lowest premium. The best policy could also be a policy which remains in force for the longest period of time, given specific assumptions regarding interest rates and the insured person's longevity. On the other hand, the best policy could be the policy which provides the highest death benefit or cash value accumulation, given an assumed number of level premium payments over a stipulated period. Finally, the best policy could be the policy which provides the highest guaranteed rate of interest in times of low interest rates or the highest policy crediting rates during times of higher interest rates. The complexity of solving for these variables in a non-linear set of equations is an additional impediment to the development of such a system.
A third reason that universal life insurance quotes from multiple carriers have not been available from a single computer has to do with the way in which different life insurance carriers compute universal life insurance policy values. While most universal life policy illustration systems are structurally similar, many different carriers have different ways of computing the various elements of a life insurance policy. These different methods have evolved from actuarial conventions designed to reduce the complexity of computations prior to the age of computing, and, of course, through the process of product differentiation. For example, the way in which annual mortality rates are converted into monthly cost of insurance charges may be computed using a variety of different actuarial assumptions regarding the rate of deaths during the year. Some carriers assume deaths are evenly distributed across all twelve months. Other carriers assume more deaths at the end of the year. Other carriers assume the converse. Similarly, different carriers have different methods for calculating policy administrative expense charges and interest credited.
A fourth reason that universal life insurance quotes from multiple carriers have not been available from a single computer has to do with the way in which insurance is regulated. Each state has legal authority to regulate the way insurance is sold and the kind of insurance that is sold within its boundaries. Therefore, each product sold must be filed with the state insurance commissioner's office. Each state may require that universal life insurance policies have values that are calculated in different ways. For example, some states may require the use of unisex tables in computing mortality costs even though traditional actuarial principles might dictate otherwise. Other states might require different minimum guarantees in terms of the maximum insurance costs that a carrier may charge. Because in the United States an insurance quote system must be able to provide insurance quotes in more than one state in order to justify the cost of development, such state by state differences (added to the aforementioned product by product differences) increase the difficulty of developing a system for finding the best universal life insurance quote from a single computer.